24 Mar Raymond James raises two Nvidia derivative plays after big AI conference
Shares of Coherent and Lumentum Holdings could be poised for moves to the upside on the heels of Nvidia’s annual GPU Technology Conference that pushed the latest developments in artificial intelligence, according to Raymond James. The investment bank upgraded both companies to strong buy from outperform on Monday. Although Raymond James lowered its 12-month price target on Coherent to $91 from $110, that still implies more than 33% upside from Friday’s close. The Lumentum target fell to $82 from $96, reflecting more than 23% potential upside. Both stocks have plummeted in recent months. Coherent had fallen more than 31% over the past three months through Friday, while Lumentum was down about 21%, far worse than the S & P 500. “We believe concerns over Co-Packaged Optics (CPO) are overblown, which has pressured the stocks, and update/expand/extend our proprietary datacom optical model for strong 800G demand, Nvidia’s roadmap, emerging CPO/LPO form-factors, as well as non-AI datacom estimates,” analyst Simon Leopold wrote in a Monday note. “With Coherent and Lumentum stocks under pressure into the OFC trade show this year, we anticipate greater clarity on CPO and the market opportunity overall could provide a positive catalyst,” he added, referring to the Optical Fiber Communications Conference. Leopold believes Coherent and Lumentum are primed to benefit from AI backend initiatives. Notably, he anticipates that AI backend transceiver sales will reach $22 billion by 2030, equal to about a 30% compound annual growth rate. Both companies could also capitalize on front-end upgrades from data centers, CPO commercialization and telecom demand recovery as OEM inventory restocks, the analyst added. The entire datacom market, AI as well as non-AI, is likely to reach $30 billion by 2030, or 22% annual growth, Leopold said, which is likely to push Coherent and Lumentum higher. He estimates that Coherent’s datacom business could generate about $7.5 billion in revenue and contribute earnings of about $10 per share by 2030, while Lumentum’s datacom business could produce about $4.5 billion in revenue and $15 in earnings per share. Raymond James’ bullish view is in step with the rest of Wall Street. Of 21 analysts covering Coherent, 15 rate it the equiavlent of a buy, while six are at hold, according to LSEG. Twelve of 17 covering Lumentum rate it a buy, while four are neutral. Shares of both stocks jumped betyween 8% and 10% early Monday on the heels of the call.